Stock Review: Yes Bank

 

Low CASA ratio may hurt bank's margins if rates are further hiked

 

Yes Bank's fourth quarter profits of . 203.4 crore, a growth of 45.2% yearon-year, were ahead of street estimates. However, that does not appear to have enthused investors as the stock ended flat despite results being declared during trading hours on Wednesday.

Profit growth was driven primarily by high other income. However, its net interest income (NII) came as a disappointment considering the robust growth in advances and deposit.

Growth in non-interest income gathered pace in the fourth quarter and was up 17% Y-o-Y. The main component of other income was fee-based income, which grew 34% Y-o-Y to . 77 crore. The growth in non-interest income helped the bank to keep the cost income ratio at 35% for FY11 while the yield on advances was up 70 bps Q-o-Q.

Both loans and deposits of Yes Bank grew by a robust 54.8% Y-o-Y and 71.4% Y-o-Y, respectively compared with industry loan growth of 21.4% Y-o-Y and deposits growth of 15.8%. With deposit growth coming in higher as against loan growth, the credit-to-deposit ratio declined 400 bps sequentially to 75%.

However, owing to repricing of loans and hike in lending, the bank's net interest margin (NIM) — a measure of the difference between the costs of funds and the rate at which loans are priced — remained flat at 2.8%. Going ahead, with a low CASA ratio and the spectre of rising interest rates, there could be pressure on the bank to maintain its margins.

Currently, CASA (which is a lowcost deposit route) constitutes only 10.3% of total deposits. That may be boosted with the bank adding 65 new branches during the year. The asset quality of the bank improved with net NPAs declining by 47.4% sequentially. Gross NPA and net NPA ratio for the quarter came in at 0.23% and 0.03%, respectively. Provision coverage ratio improved to 88.6% from 76.1% in the previous quarter.

The loan mix has also now widened with five core-sectors comprising just about 72% of the book as against the over 80% over the past several quarters. Exposure to the MFI industry is still 0.7 % of the total loan portfolio. Also, the restructured loan portfolio remains low at 0.24% of total loans.

Yes Bank has increased its focus on non-interest income and has maintained superior profitability and return ratios. However, the bank's low share of CASA in the near term remains a concern.